An accounting and bookkeeping term for a temporary account is suspense account. Its function is to store balances or transactions that cannot be quickly categorized or identified. Until more details are available or a suitable account can be found, the account serves as a stand-in. The implementation of a suspense account helps guard against mistakes and guarantee the accuracy of financial records.
When the accounting system is unbalanced, a suspense account is often opened. This can be the result of a number of factors, such as an inaccurate transaction record or insufficient data to properly classify the transaction. In such a case, the balance or transaction is recorded in the suspense account until the appropriate account can be found.
For instance, if a customer sends a payment but doesn’t identify whose invoice it is for, the company may put the money in a suspense account until the right invoice can be found. Similar to the last example, if an expense is incurred but it is unsure of which account it should be charged to, the expense may be recorded in a suspense account until the proper account is identified.
Suspense accounts can retain balances for transactions that are ongoing, transactions that have been canceled or reversed, or transactions that are not yet finished, among other things. They may also be used to transactions that need for additional research or clarification.
It’s crucial to keep in mind that a suspense account is merely a band-aid. Its goal is to hold transactions or balances until a correct classification can be made. The transaction or balance needs to be moved to the correct account once it has been determined which one it belongs in. A balance that stays in a suspense account for a long time may be a sign of a problem with the accounting system and needs to be looked into further.
In conclusion, a suspense account is a transient account intended to store transactions or balances that cannot be quickly categorized or identified. It is opened when the accounting system is unbalanced and acts as a stopgap until more data is available. Suspense accounts should not be utilized as a long-term fix, and once the right account has been found, funds should be transferred there.